Ukraine Gets Golden Arches

Mcdonald's So Beloved Overseas It's A Boost For Nation's Image

KIEV, Ukraine _ — McDonald's opened its first outlet in the Ukrainian capital in May.

Exactly one week later, after five years of squabbling and six official postponements, Russian President Boris Yeltsin finally came to Kiev and signed a Russian-Ukrainian friendship treaty.

Mere coincidence?

Not according to the Golden Arches Theory of Conflict Prevention. Serious students of international affairs have noted _ tongue only partially in cheek _ that no two countries with a McDonald's have ever gone to war against each other.

The basis of the theory is that the presence of McDonald's means a country has achieved a level of economic maturity and consumer comfort that it would be unwilling to jeopardize by engaging in armed conflict with a neighbor.

Moscow has hosted McDonald's for more than a decade. Now Kiev has two stores. Thanks to the Oak Brook, Ill.-based fast-food giant, the world is a safer place.

With stores and franchises in 102 countries, McDonald's Corp. is a superpower in its own right.

Recently it surpassed Coca-Cola as the planet's most recognizable brand, according to the Interbrand Group, an international consulting firm.

So all-encompassing is McDonald's global clout that the Economist magazine produces an annual ``Big Mac Index'' pegged to the price of a Big Mac in 33 selected countries. The magazine's editors tout their index as an uncannily accurate guide to whether various currencies are overvalued or undervalued.

At home, however, the company has experienced some difficulties: a 55-cent burger promotion that flopped, stiff competition from rivals Burger King and Wendy's, and marketing reports that suggest American consumers don't think the McDonald's burger tastes as good as it once did.

But these problems are more than offset by gains overseas. This is powerfully evident in Ukraine, a barely tapped consumer market of 52 million people where McDonald's is poised to launch one of the most ambitious expansion campaigns in the company's history.

Ukraine's potential is as huge as its girth _ it covers more of Europe than any nation except Russia _ but rampant corruption and red tape have kept many Western investors at bay.

McDonald's has proceeded with caution. It began exploring the possibility of doing business in Ukraine in 1992, the year after independence.

But uncertainties about the local real estate market, the tax system and inflation that peaked at about 10,000 percent in 1994, caused it to hold back.

``Today the climate is much better,'' said Karl Fritz, managing director for McDonald's Ukraine Ltd. ``The current government is getting a handle on the tax system and the real estate question.''

Current plans call for seven stores to be up and running by the end of this year, and a total of 85 by 2000.

``If you look at Ukraine on a 10-year pattern, you could fit 200 to 250 restaurants here,'' said Fritz, an Austrian who was finance director for McDonald's Central Europe before taking over the Ukrainian project last September.

From the consumers' side of the counter, manufacturing a Big Mac may look pretty simple. It isn't. And it is even tougher for McDonald's in an environment like Ukraine.

McDonald's understands that its success lies in delivering consistency. And in Ukraine, consistency is a scarce commodity.

McDonald's normally attempts to buy all of its products locally. But to do this in Ukraine, the company has had to build a supplier network from the ground up _ literally.

Soil samples were taken and tested _ radioactive fallout from Chernobyl is still a concern in Ukraine _ before the company settled on a salad supplier from the Crimea and a beef herd from the distant reaches of eastern Ukraine.

``We started looking for beef in 1994. We investigated the ground, the feed, the quality of the herd. We looked at about 25 slaughterhouses before we finally found one that was up to EC standards,'' said Fritz.

After reaching an agreement with the slaughterhouse, McDonald's brought in Chicago-based OSI Industries, a longtime McDonald's partner, to handle the meat patty production and logistics.

At the moment, McDonald's in Kiev is serving imported beef, but the first all-Ukrainian Big Mac is scheduled to be put on the menu sometime in September.

Finding and training counter crews in Kiev proved somewhat easier. It doesn't take a rocket scientist to manage a McDonald's store, but that didn't stop the company from going out and hiring a bunch anyway.

McDonald's took advantage of Ukraine's highly educated and underemployed work force, recruiting a roster of 80 management trainees, virtually all of whom have impressive university degrees in fields such as chemistry, physics and engineering.

The trainees were put through an eight-month crash course in ``burgerology'' at McDonald's franchises in Poland and the Czech Republic.

Kitchen and counter jobs for the two stores in Kiev also were easy to fill. McDonald's pays $150 a month _ nearly four times the average wage in Ukraine.

McDonald's product line is priced to be competitive with local fast-food offerings. A Big Mac at $1.59 is one of the better bargains on the continent, according to the Economist's Big Mac index.

Thus far, the two outlets in Kiev are doing a brisk business. Residents have hailed the arrival of the fast-food franchise as proof Ukraine is finally part of Europe.